Believing in innovation may sound self-evident. Many leaders say that innovation is critical to securing future growth. But, in fact, management many choose among many options in order to secure corporate growth. Innovation is one of them, but there are more.
I/ Innovation is one growth driver among others
Senior Management may choose between multiple growth drivers in order to secure future growth, including:
- End market growth
- Increased market share
- Geographic expansion
- Organic growth and innovation
This shows that innovation is one of many growth drivers. Therefore, understanding the role that Senior Management wants innovation to play is not obvious. Are there really looking to innovation to secure future growth or are they looking at innovation to improve their corporate image? This is a question I addressed, a few weeks ago, when I sat down with a friend innovator. We agreed that Senior Management may either invest in innovation for public relations or secure future growth. How do we know where innovation stands in the mind of Senior Management?
II/ A fictional case
Let’s assume that I work as an innovation director in a large fortune 500 company.
- How will I know if the innovation function is really taken seriously?
- In other words, how do I know if Senior Management is only paying lip service to innovation?
- In other words, how do I know if corporate management invests in innovation for public relations reasons or if management invests in innovation for business reasons?
This is a real question given that management will never recognize that they have hired an innovation director for public relations’ reasons. Doing so would cancel out any image benefit that they may earn from having an innovation director in the first place.
There are basically several things to take into consideration in order to assess whether innovation is taken seriously or not.
III/ Innovation must be a strategic priority
This means that innovation must be spelled out as critically important to the company’s strategic growth plan area. I immediately thought about Procter and Gamble. Procter and Gamble is a company that makes about $80 billion in sales. They are finding it very difficult to grow their existing business by double digits worldwide. Therefore, in order to secure a 5% organic growth rate, they need to create $4 billion in new businesses. If Procter & Gamble fails to sustain its current growth rate, shareholders will punish management and Proctor and Gamble’s share will decrease. Securing double-digit growth rates means creating multiple billion dollar new businesses. This really shows why innovation is so critical to Procter & Gamble. They need innovation to sustain corporate growth which they cannot sustain if they were to rely on existing businesses only. Also, they need innovation to maintain and increase shareholder value.
IV/ Innovation must be grounded on specific corporate concepts
Knowing whether innovation is taken seriously at a strategic level means answering basic questions:
- What’s innovation? What’s innovation for the Corporation?
- What does management expect from innovation?
- Why does management want to innovate?
- What is it about the Corporation’s current competitive environment that makes innovation and necessity?
- What is it about the existing business model that makes identifying new revenue streams critically important to the company’s growth?
If the innovation director can easily find answers to these questions either through informal discussions with management or through sifting through the company’s annual report, then innovation is considered to be a key driver of corporate growth. In any case, understanding what management wants to get out of its investment in innovation is critical.
V/ Asking simple questions will uncover whether innovation is really valued
Assessing whether innovation is taken seriously requires looking at how innovation is realized throughout the Corporation.
- What role does innovation play in business unit action plans?
- Who was in charge of making innovation happen are there dedicated people, close to the field, that are in charge of realizing innovations?
- And, if they are no resources on the field that are in charge of realizing innovation, are there other resources that have a percentage of their time that’s dedicated to innovation?
VI/ How to figure out if Senior Management is serious about investing in innovation?
Similar questions apply to the innovation budget:
- Where is the budget dedicated to innovation?
- Who is the owner of the innovation budget?
- Are there multiple innovation budget owners throughout the company?
- Assuming they are innovation budget owners, do they enjoy full autonomy in using their budget or must they secure agreement from other functions, such as information technology or purchasing, in order to spend their budget?
Obviously, understanding how the organization has decided to organize its innovation investments depends on how the company is organized. But, it’s clear that a good indicator of management’s willingness to invest in innovation is found in identifying innovation dedicated resources, whether it’s full-time employees or a dedicated budget.
- For a discussion on the role innovation is playing in securing organic growth at P&G, please refer to Scott Anthony and David Duncan’s Building a growth factory
- For a discussion on how to assess the return on innovation investment, please refer here
[…] How will I know if the …read more […]
Guillaume, I see your second cluster of questions and will presume a functional or divisional structure in which budgets allocated to innovation are distributed to those units. Even with the discretion to pursue innovative ideas, I fear the game is still not set for success. Middle managers, the likeliest candidates for leading these initiatives, remain notorious for avoiding risky behavior. That’s a HUGE problem that destroys the momentum of any ideation and implementation agents for whose actions the manager is responsible. Having attained some level of security in their positions, the safe bets prevail when what the organization needs are game-shifters at worst or entirely new games at best. By this I mean that the innovation investments must swing the market toward an area of internal strength or create an entirely new market that still too plays to the core capabilities of the organization.
Thanks for inviting me to share my thoughts.
Thank you for your comment. I totally agree with you.
I have found that companies are ready to innovate only when they know that their current business is going down the cliff. In a sense companies will resort to innovation if and only if their existing business is doomed to fail.
Clayton Christensen has often said that leading companies must create new organizations (spin offs) which are led by new people and which will create new products.
This goes a long to show how resistant to innovation established companies can really be.
Hope this is a useful comment. I’m looking forward to reading your ideas… and commenting on YOUR blog as well.
Have a great week-end
I think that it is a good article.
It looks like, indeed, that in some corporations, the Innovation Department is like PR as the one of Sustainable Development could be.
As a test, we could check from whom the department depends.
Of course if it depends from PR, Legal or Finance, there is little credibility.
If it depends from the Marketing, Operations, R&D or Production departments this seems that there is a credibility.
If it depends from the CEO, the “acid test” is more difficult.
If the CEO is closely involved in product definition, industrial processes and the investments decisions are depending from the Board or the CEO it looks that this department is not a PR one.
But, if the company is a conglomerate, it is more difficult to assess. In this case, the Innovation Department should work with dedicated teams in each business unit of the conglomerate.
If not, it could still really be genuine if it becomes key in order to promote the creation of new innovative business units, but that would mean that the innovation is not a priority of the other business units.
[…] de celles qui font de l’innovation pour faire de la communication, veuillez-vous référer à ce […]